Category: Regions

As widely expected, Colombia’s central bank kept its monetary policy rate at 4.5% during its August 28 meeting, and say it expects inflation to end the year below the 5% target. It stands at 3.3% on an annual basis through July. Bulltick Capital, which agreed with market consensus, also says it believes the rate will remain unchanged until after the 2010 presidential elections because of strategic issues. Morgan Stanley expects the rate to remain at 4.5% for the rest of the year. However others see room for easing. “The recent COP appreciation, converging inflation dynamics, well anchored inflation expectations, and weak demand and labor market conditions, could warrant additional moderate rate-easing,” says Goldman Sachs. “At 4.50%, the policy rate level is still restrictive (in nominal and real terms) compared with the very weak cyclical position of the economy; particularly when taking into account the serious limitations to adding fiscal stimulus to the economy,” it adds.

A new Colombia 30-year bond could see a yield in the low 7%s, according to dedicated EM investors. Colombian officials have recently indicated that the sovereign is considering pre-funding 2010 with a new issuance of as much as $1bn this year, possibly following Brazil to the long end of the curve with a 30-year transaction. The sovereign also has the option to tap existing 7.375% of 2037s, trading to yield around 6.9%, but a new bond is seen as a way to take best advantage of market sentiment. “If you can get it done at low 7%, that’s just not a lot to have to pay up for 30-year debt from the Colombians’ perspective,” notes a Europe-based EM investor. This year Colombia has sold $2bn in 7.375% of 2019 bonds through 2 issues – via Barclays and Morgan Stanley in January and Citi and JPMorgan in April.

The possibility of another Uribe administration in Colombia is unsettling some investors, but Moody’s says it will not affect the sovereign credit rating. “Given Colombia’s long democratic tradition, a bid for a potential third term by President Uribe would not likely affect the trajectory of Colombia’s ratings,” says Moody’s senior analyst Alessandra Alecci. “Most of the other potential candidates are fairly close to Uribe’s center-right orientation and none would likely change course on economic policy or on the successful security policy.” The comment is made in the agency’s annual report on Colombia, in which Moody’s says the country’s Ba1 foreign currency government bond rating is supported by relative stability in macro-economic policy, an impeccable debt-service track record and financial backing from the US. Key constraints to the rating include structural challenges to the fiscal position in light of increasing inflexibility in expenditures and a narrow revenue base. “Colombia’s persistent external imbalance and its growing dependence on unstable export markets such as Venezuela and Ecuador underscore the country’s relative lack of diversification,” says Moody’s.

Avianca has sold COP410bn ($205m) in bonds on Colombia’s domestic market, according to a broker managing the sale, on the back of COP692bn in total demand. In the offer, the Colombian airline placed COP75bn in 2014 bonds at the IPC index plus 5.50%, COP158bn in 2016s at IPC plus 6.30%, and COP266bn in 2019s at IPC plus 6.69%. Proceeds of the bond sale fund the purchase of 4 new aircraft from Airbus and repay bank debt. InterBolsa coordinated the sale, rated AA+ on a national scale.